GED Social Studies TestU.S. HistoryEasy
A student is researching the causes and consequences of the Great Depression. Which of the following was a significant contributing factor to the severity of the economic downturn in the United States, particularly concerning financial institutions?
- AGovernment policies that significantly increased social welfare spending.
- BWidespread speculation in the stock market and easy credit.
- CThe rapid growth of international trade creating a trade surplus.
- DOver-regulation of the banking industry leading to limited credit.
Show answer & explanationAnswer & explanation
Correct answer: B. Widespread speculation in the stock market and easy credit.
Widespread speculation in the stock market, coupled with an unsustainable system of easy credit and buying 'on margin,' created an unstable financial bubble that burst in 1929, significantly contributing to the Great Depression's onset and severity.
Why the other options are wrong
- A. Social welfare spending was minimal before the Depression; the New Deal later introduced such programs as a response.
- C. International trade declined, and protective tariffs exacerbated economic problems, rather than created a surplus.
- D. The banking industry was largely under-regulated, contributing to its fragility.
Causes of the Great Depression
A combination of factors led to the severe economic downturn of the 1930s, including financial instability, agricultural struggles, and unequal distribution of wealth.
- Stock market crash of 1929.
- Banking panics and widespread bank failures.
- Overproduction and underconsumption.
- High tariffs and international trade disruptions.
Memory trick: DEPRESSION's roots were deep: stocks, banks, and farms all weak.